(a) Where a corporate borrower is in financial difficulty and an unsecured debt has become due, would it be usual or customary for an unsecured creditor (particularly, a bank creditor) and/or the corporate borrower to attempt to negotiate some suitable arrangement for repayment of the debt before the creditor invokes legal recovery methods?

 

Yes.

(a) What mechanisms are available under the legal system of this economy for unsecured creditors to collect debts owed to them by the corporate debtor?

 

There is only one way for an unsecured creditor to collect debt under our legal system: it shall first file a petition to the court to institute court proceedings for its claim under the agreement between the creditor and the debtor. After the final court judgment favorable to it has been obtained, the creditor may file an application to the execution court to enforce the judgment against the debtor's property .

(b) In practice, which method(s) of recovery of unsecured debts are most commonly employed by unsecured creditors of a corporate debtor?

 

Please refer to (a) above.

E3. Effectiveness of judicial system

(a) How effective is the judicial and court system for the purposes of debt collection?

 

In comparison to the foreclosure of collateral by secured creditors, the debt collection by unsecured creditors is much more time consuming. The unsecured creditor usually needs to pursue through court proceedings. The court proceeding will generally take about 3 to 6 months for one instance.

(a) What effect, if any, does the commencement of insolvency proceedings against a corporate debtor have on debt recovery proceedings?

 

Except for the moratorium in case of reorganization as mentioned above, the secured creditors may foreclose the security without being affected by the insolvency proceedings. No matter it is a reorganization or bankruptcy, unsecured creditors need to follow either the reorganization procedures (adhering to the reorganization plan) or bankruptcy procedures (sharing the remaining assets of the debtor on a pro rata basis).

(b) What effect, if any, does the formal pronouncement of an insolvency administration in respect of the corporate debtor have on debt recovery proceedings?

 

During the debt recovery proceedings, the trustee in bankruptcy shall become the party taking over the corporate debtor with respect to the subsequent proceedings. Even if the court judgment is in favor of the creditor, the repayment by the corporate debtor to the unsecured creditors shall be made following the bankruptcy procedures.

During the debt recovery proceedings, the reorganizer shall become the party taking over the corporate debtor with respect to the subsequent proceedings. Even if the court judgment is in favor of the creditor, the creditor needs to follow the reorganization plan approved by the court.